For Inventor of 21 Patents, Patent Troll Litigation Not Very Lucrative

Recently, I wrote a post on why I think that patent litigation is not a viable business model for inventors. Given a realistic deconstruction of the costs and possible damage awards, I concluded that, in most situations, it is not realistic for an inventor to presume that she will “hit the jackpot” by suing infringers and extracting settlement or damage awards. I obtained some pushback from this post, mostly from patent litigation lawyers, who contend that I am wrong in my view that patent litigation does not pay for inventors. Of course, everyone is entitled to their opinion, and I respect the views of others, however, no one who objects to my (somewhat) negative view of patent litigation as a business model, has provided me with numbers to discount my economic analysis of patent litigation.

While $748K is certainly nothing to sneeze at, it does not seem like a huge return on an investment when the patents probably cost $10-$20K each to obtain and took several years of effort on the part of the inventor. Of course, there is likely much more to the story–especially given the fact that the inventor is currently encarcerated in a Federal Prison–but it nonetheless provides a “peek behind the curtain” of the usually highly confidential settlements involved in patent litigation.

This Prior Art blog post is definitely a fun read for those who wish to know more. The key takeaway for me, however, is that there are likely better ways to make money than being an inventor involved in patent troll litigation. Maybe if you were the law firm or aggregator, that would be a different story, but for 21 patents, this does not seem like a lot of money. As a friend of mine who is a prominent IP valuation expert said: “It certainly doesn’t seem to generate income commensurate with the investment or risk.”

If anyone has non-confidential numbers that would confirm or refute my ongoing belief that patent litigation is in all likelihood a bust for most independent inventors. As it stands now, the absence of information about what an inventor can make by suing infringers makes it impossible for inventors to generate a realistic view of what they can hope to make by bringing suit against companies. It may be that the numbers are better than it now appears to me. But, as someone who works with inventors to provide them strategic and pragmatic business advice, I cannot in good faith recommend that they hope that patent litigation can be a viable source of income for them.

What we see in the courts is just the tip of the iceberg. There are many many cases where a company and small inventor settle way before it ever gets to the court – and NDA’s signed so we never hear about it.

This comment was emailed to me by a patent attorney who asked to remain anonymous. My reply is in the next comment.

Jackie,
Read the blog article with great interest.

There is little wrong with your analysis, but it might be a bit incomplete. Patent litigation is (obviously) an exceptionally expensive proposition, but it may well make a great deal of sense for inventors, depending on the overall strategy and only in the right circumstances. An inventor without a track record will often run into a great deal of difficulty licensing their valuable patents for a ‘fair’ price (whatever that means) – until the first jury verdict hits. No inventor should look forward to engaging in a patent litigation campaign, but that often becomes required to engage in the desired licensing campaign.

In other words, looking at “$748K from the total $2.17MM ” fails to include a lot of information that would be necessary to evaluate whether the inventor in this case had a good, bad, or ugly strategy. What other licensing success was there? Other cases filed? Additional licenses after the cases were filed? Did the royalty rate increase after verdict? Were there prior licenses that required enforcement from the patentee?

Yes, I’m a patent litigation attorney sometimes, sometimes more of a prosecutor, but the key to both is maximizing the value of the IP – and sometimes the only way to get the licensor and licensee to agree on the value is to have a jury (or discovery) tell them that its either worthless (patents invalid, not infringed etc.) or exceptionally valuable.

Yes, I readily admit to overgeneralizing. As someone with a fairly high profile in this space due to my blogging and speaking, many people contact me about such matters. Many of these people look at the “sexy” press stories about how much people get from litigating their patents (ie RIM and others) and incorrectly extrapolate that they can also hit the jackpot like that. Are there success stories: yes. Do many patent litigation efforts end up costing far more in litigation costs than can ever be recoved: yes. The purpose of my post is to provide a different perspective on the somewhat rosy view that is often given to inventors by us patent folks. (In case you don’t know it, I was a highly compensated law firm parter: primarily pros and opinion work, but also considerable litigation experience. I also was at a large corporation. So I have lived this first hand and now regret a good portion of the advice I gave over the years about litigation after seeing clients bleed money to my firm for little return.)